I refer to the Committee’s report Conduct and competition in SME lending and my letters dated 25 and 28 March 2015.

The NAB subsidiary, Clydesdale Bank, deceived small business borrowers as to what they were actually signing up for. The “Relationship Manager” promoted a variable rate loan with protection from a rise in interest rates (a “cap”) , while the loan documentation provided by the parent Company NAB included a “collar” that would defeat the monetary policy tool of the Bank of England and deliver wind-fall profits to Clydesdale bank if interest rates fell as they were predicted to do.

This deceptive business practice by NAB is not an isolated incident.

Deceiving the Customers

The next example of deception practised by NAB was revealed by recent Select Committee inquiry in Australia.

In Australia superannuation is compulsory with employers forced to make contributions into superannuation funds at a rate of 9.5% of the employees’ salary.

Superannuation funds (pension funds) are established using a “trust” and a trustee as the archetype fiduciary is not supposed to make a profit from his position as a fiduciary.

However there is a loophole that is exploited by NAB and the other banks and that is a trustee can make a profit if all the beneficiaries of the trust agree that the trustee can make a profit.

Therefore buried in the “fine print” of the Trust Deeds of superannuation funds administered by the banks is the clause that allows the bank to make a profit by charging various “fees” on top of those to cover the basic administration costs. There is more “fine print” in the application form to join the fund stating that the customer, who is to become a beneficiary of the fund, “agrees” that the bank as trustee can make a profit from the trusteeship.

Not all superannuation funds impose these “fees”. There has been much consolidation in the superannuation industry in Australia in recent years and about half of members are in “Retail Funds” run by the major banks and half are in non-for-profit “Industry Funds” administered by Employer-Union arrangements.

A marketing tool used by “Relationship Managers” is a computer calculator that projects the growth in an investment in a superannuation fund.

However the impact of the “fees” charged by Banks such as NAB can have a significant impact over the life of a superannuation investment. In fact a person who invests in a better performing “Industry Fund” can obtain twice the retirement benefit of someone who makes the same contributions into a “Retail Fund” that charges “fees”.

This is not the sort of information that a “Relationship Manager” for the NAB would want to disclose when marketing an NAB Superannuation fund.

Testimony was provided at the Select Committee hearing by a former officer of the financial regulator ASIC of the practice of a NAB subsidiary company of seconding NAB lawyers to ASIC, so as to “influence” regulatory outcomes determined by ASIC.

One of the regulatory outcomes was that NAB would be able to circumvent the law as enacted by the Parliament of Australia and conceal the impact of the “fees” charged by NAB on the anticipated final superannuation benefit. In effect ASIC simply rewrote the law to allow NAB to deceive its customers as to what they were actually signing up for.

Senator Sam Dastyari was not a member of this inquiry by the previous Senate Economics reference committee, however he will have access to the testimony of James Wheeldon, who provided evidence of the corrupt conduct of both NAB and the regulator ASIC. This testimony should be part of the information share arrangement between the Australian Senate Economics Reference Committee and the UK Treasury Select Committee.

In Summary

The NAB has a track record of employing “The Art of Deception” in marketing its financial products to customers who believe that they can trust a major bank.

In the case of the UK scandal, the loan documentation prepared by NAB should have contained a clear warning such as:

“This Tailored Business Loan incorporates features designed to defeat the monetary policy tool of the Bank of England. Before accepting this loan offer consideration should be given to how resilient your business will be if general economic conditions deteriorate and the Bank of England reduces the prevailing interest rate.”

“The Trust Deed of this NAB Superannuation fund allows NAB to make a profit from administering this superannuation trust by charging various “fees”. The impact of these “fees” may be substantial over the life of this superannuation investment and your benefit could be substantial less than what you will receive in a non-for-profit fund.”

Many financial products are complex, span a considerable period of time and are subject to the vagaries of financial markets.

It is extremely easy for a Bank that has encourage a culture of “Profits before People” to engage in active deception so as to market its flawed financial products to people who are not financially sophisticated, which is the majority of the population.

It is important the Treasury Select Committee understands the culture at NAB if the victims of what is politely termed “mis-selling” of business loans are to receive just compensation for the deceptive business practices of NAB.

The plight of the victims of the Tailored Business Loans marketed in the UK is not the result of an “accident” on the part of NAB. It is just another example of the deceptive business practices of NAB that puts “Profits before People””.

Remember this is a bank that simply refuses to pay pensions to widows so as to increase reported profits.